S.Korea’s Hanwha acquires 9.9% in Australia’s Austal

South Korean chemicals-to-defense conglomerate Hanwha Group has taken a 9.9% stake in Austal Ltd., an Australian shipbuilder, for 183.3 million Australian dollars ($117 million) to cement its presence in the global shipbuilding and defense sectors, the company announced on Tuesday.

According to defense company Hanwha Systems Co. announced in a regulatory filing that it acquired 41.2 million shares in Austal for 4.45 Australian dollars a share, or 183.3 million Australian dollars in total, after the market closed on Monday.

The per-share price represents a 16% premium to Austal’s closing price on Monday.

HAA No. 1 PTY Ltd., an Australian entity set up by Hanwha Systems and its space and defense sibling Hanwha Aerospace Co. took over Austal’s stake in a 60:40 respective stake ownership, the company said.

The Korean defense company hopes its stake acquisition can deepen its strategic partnership with Austal to empower both companies' defense and shipbuilding capabilities and contribute to Australia’s defense and shipbuilding industries, Michael Coulter, Hanwha Aerospace's defense business global chief executive and president, said in a statement.

“Hanwha’s position as a global leader in smart shipbuilding will provide Austal access to capital, international relationships and operational and technical expertise which can accelerate the development of Austal’s business and in turn, enhance Australia’s sovereign defense capability, at a time when this capability is more important than ever,” he added.

In addition to its 9.9% shareholding, Hanwha clinched a cash-settled total return swap (TRS) deal for an additional 9.9% stake in Austal, a contract allowing the party receiving the total return to gain exposure and benefit from a reference asset.

After the stake purchase, Hanwha applied for approval from the Australian Foreign Investment Review Board (FIRB), which is accountable to the Australian Federal Treasurer, to increase its shareholding in Austal to 19.9%, the company said.

A foreign company’s acquisition of a 10% or more stake in an Australian company requires a nod from the FIRB.

TO EXPAND PRESENCE IN GLOBAL DEFENSE AND SHIPBUILDING

The latest acquisition comes less than a year after the Korena conglomerate took over a 100% stake in Philly Shipyard Inc. for $100 million from Aker Capital, an Oslo-based Norwegian energy investment company, last July.

The deal allowed Hanwha to become the first Korean firm to enter the US shipbuilding industry.

Coupled with Austal, the Korean chemicals-to-defense conglomerate expects it can cement its presence in the global shipbuilding and defense sectors as a key player at a time when the US government is striving to revive the country’s shipbuilding industry and naval force.

Founded in 1988, Austal specializes in building not only commercial but also defense, or naval, vessels as a global defense prime contractor.  

As one of the four major suppliers to the US Navy, it built a surface warfare combatant ship, the Independence-class Littoral Combat Ship (LCS).

Headquartered in Australia, it operates shipyards in Alabama, the US, and Henderson, Western Australia, to build special vessels for various countries, including the Australian Border Force and Royal Australian Navy.

Its order backlog stands at 14.2 billion Australian dollars.

Hanwha Ocean Co. under Hanwha is one of Korea’s top three shipbuilders, building both commercial and defense ships.

Formerly Daewoo Shipbuilding & Marine Engineering Co., better known as DSME, Hanwha Ocean is the only Korean company that has built submarines for the Korean Navy.

Last week, it completed a six-month refurbishment of a 210-meter, 40,000-ton US Navy vessel at its shipyard in Geoje, Korea, and returned it to its home.

The Korean shipbuilder expects more maintenance, repair and overhaul (MRO) orders from the US Navy, while its partnership with Austal is expected to help it enter the US combatant shipbuilding field.

MORE STAKE TAKEOVER

Hanwha Group attempted to take over Austal last year, but their talks collapsed after the Australian shipbuilder initially rejected the Korean conglomerate’s buyout offer last April.

Austal cited concerns that the necessary approvals for Hanwha’s takeover of its stake would not be granted by the Australian government and the US government as its reasons for rejecting the offer.

Under Australian law, the FIRB must approve any investment worth more than 339 million Australian dollars in sensitive business such as those that supply equipment to the Australian Defence Force (ADF).

Hanwha is expected to appoint its officials as directors of Austal’s board as part of its efforts to take over more stakes.

According to Australian law, a major shareholder with a 5% or more stake can request a company board director appointment or management change.

Hanwha Systems and Hanwha Ocean shares jumped more than 5% on Tuesday morning after the Austal stake purchase news.

The Korea Economic Daily exclusively reported on Hanwha’s bid to buy Austal’s stake on Monday. 

Write to Jun-Ho Cha and Jong-Kwan Park at chacha@hankyung.com

Sookyung Seo edited this article.